Analysis / Daily / Finance / forex / Money

ECB, BoE expected to keep rates unchanged.

  One Pound
The pound fell for a fourth day versus the dollar as Bank of England officials prepared to announce their latest policy decision, with markets showing it will be another full year before they raise interest rates. Investors are pricing in the first full 25 basis-point increase in U.K. borrowing costs for March 2016, according to derivative contracts. None of the 51 economists surveyed, forecasts the Monetary Policy Committee will raise the benchmark interest rate following the conclusion of the meeting today, taking record-low borrowing costs into a seventh year. While a rate increase is still not considered to be imminent, Britain’s currency has enjoyed the best start to the year on a trade-weighted basis since 2009 as an improving economy prompted investors to bring forward bets on the first interest rate increase since 2007.

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The euro remained under pressure yesterday after falling to an 11-year low against the dollar as investors waited for the European Central Bank (ECB) to announce details of its bond-purchase programme. With the ECB’s decision-making council meeting this afternoon, President Mario Draghi is set to unveil details of its €1.1trn quantitative-easing plan, due to be launched this month to ward off deflation. The ECB’s stance is in stark contrast to the Federal Reserve’s plan to exit crisis support, having ended its asset-purchasing plan in October and now planning to raise interest rates this year.

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The dollar is continuing to strengthen, underpinned by the markets (some say misplaced,) perception that the Federal Reserve will do what’s needed and finally raise interest rates. This contrasts other central banks which, one after another are loosening. The dollar index, which tracks the greenback against a basket of major currencies, hit new 11-year highs, rising 0.6 per cent to 95.99 Investors see buoyant US yields are helping to provide buying interest in the dollar as the search for even minute yield continues. The spread of US government 10-year yields over German equivalents is at the widest level since the 1980’s. Currency analysts and traders will now be turning their attention to the release of US job creation data tomorrow. A pointer came yesterday with the publication of US private-sector employment data, showing 212,000 jobs were created in February, the sixth month in a row of gains. Strategists are now under the opinion that that if continued positive data emanates from the land of the free, this will send EUR/USD one way – Down.

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